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Talks to form a government in Germany appear to have made some progress. Chancellor Angela Merkel’s party the Christian Democrats (CDU) has reportedly reached a deal with its sister party the Christian Social Union (CSU) over the issue of a refugee cap.

It is believed to have been set at an annual limit of around 200,000. The breakthrough would remove a major obstacle as Merkel’s CDU seek to form a coalition government.

The two parties have formed a parliamentary bloc together for decades, but have diverged over migrant policy since Merkel left the border open to a huge wave of migrants in 2015, most of whom entered the country through Bavaria. Under the face-saving compromise brokered on Sunday (Oct. 8), Germany would accept a net of about 200,000 people a year on humanitarian grounds, including families of refugees already in Germany. The cap would be flexible if needed, according to international circumstances.

Merkel won a fourth term as chancellor in a September 24th election but was weakened by heavy losses to the far right – the issue of immigration being a major factor.

Merkel wants to bring together her conservative bloc and two other parties – the liberal, pro-business Free Democrats (FDP) and the Greens – which are far apart on issues from tax and energy to Europe.

It could still take months to get a full coalition deal. Meanwhile investors are concerned about a policy standstill in Europe’s biggest economy.